4 Birthdays Crucial to Your Pre-Retirement Plan SHP Financial

The retirement planning process can span many years. Several milestones between ages 50 and 66 can impact an individual’s retirement snapshot and shape the eventual outcome. At these points, participants are afforded opportunities to effect meaningful change. An annual review of the plan will ensure that savers hit those markers and stay on the path to retirement readiness. Here are the birthdays that mean more than just another candle on the cake.

Age 50: Play Catch-up

At age 50, the limits on retirement contributions increase. Savers ages 50 and above can contribute additional funds to their retirement accounts. According to the Internal Revenue Service (IRS), participants in 401(k), 403(b), and most 457 plans can contribute $7,500 beyond the $23,000 standard for a total of $30,500 in 2024. For individual retirement accounts (IRA) in 2024, the catch-up contribution is $1,000 more than the standard contribution of $7,000 for a total of $8,000. Catch-up contributions allow participants to reduce gaps in their savings toward their retirement goals. [1] 

Catch-up contributions have tax advantages. Roth IRA holders will not pay tax on their eventual distributions, and contributions to traditional retirement accounts are often tax deductible. They can even lower the participant’s tax bracket. Those who pay the maximum see the most reward.

Finally, age 50 is an opportune time for savers to evaluate their investments and gauge their risk tolerance. For example, a shift toward a more conservative portfolio at this point can protect accumulated wealth. Fifty is also the magic age for an AARP membership and all the discounts, programs, and services that come with it.

Age 59 1/2: Celebrate the Half Birthday with Penalty-free Withdrawals

The rules governing U.S. retirement accounts permit IRA and 401(k) holders age 59 ½ and older to take money from their retirement savings without incurring the 10% early withdrawal penalty. They can also roll old 401(k) funds into a traditional or Roth IRA. There is a provision known as the IRS rule of 55 that applies to people who retire early or leave their job during or after the year they turn 55, which permits penalty-free withdrawals from 401(k) and 403 (b) accounts. However, to access the funds from all retirement accounts, including IRAs with no restrictions, one must be at least 59 ½.

Age 62: Early Retirees Claim Social Security

Age 62 is the soonest early retirees can collect Social Security benefits. Individuals should factor their health, financial situation, and long-term retirement goals into decision-making about early benefits. While the additional income is a plus, early claimants receive reduced payouts compared to those who wait until 65. Moreover, an early claim lowers monthly payments for life, while collecting after 66 can increase those installments. Because Medicare eligibility begins just before age 65, early retirees should prioritize healthcare coverage to bridge the gap years.

Age 65: Enroll in Medicare

Individuals become eligible for Medicare three months before their 65th birthday, and that open enrollment window lasts for seven months. Medicare premiums increase 10% for each 12 months of eligibility without enrollment. To avoid that penalty, candidates should join within eight months after they stop working.

Age 66-67: Full Retirement Collects Full Benefits

Birth year determines eligibility for full Social Security benefits. The full retirement age is 66 for individuals born between 1943 and 1954. The age increases in small increments between 1954 and 1959, moving to 67 for those born after 1959. The option to collect early at 62 is there, but those who wait till full retirement age can work and receive Social Security benefits. Additionally, delaying beyond full retirement age increases monthly payments. According to “U.S. News & World Report,” in 2022, people born between 1943 and 1954 who waited till age 67 to claim saw an 8% increase in benefits. The same group at 68 received a 16% increase, an extra $160 on the usual $1,000 monthly payment. [2]

 A retirement planning timeline presents several opportunities for participants to optimize savings, maximize benefits, and adjust strategies as they progress through different life stages. Individuals can enhance their financial security and enjoy retirement by effectively leveraging these milestones. Happy retirement planning means happier birthdays. For a complimentary review of your finances, contact a professional at SHP Financial today. We will help you with your pre-retirement timeline and create a comprehensive plan that realizes your goals.



[1] https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000#:~:text=Therefore%2C%20participants%20in%20401(k,to%20%2430%2C500%2C%20starting%20in%202024.

[2] https://money.usnews.com/money/retirement/social-security/articles/the-most-popular-ages-to-collect-social-security

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